Failure of the Elite

Our elites are inbred, gibbering, idiots.

Why Inequality Matters

By PAUL KRUGMAN, The New York Times

Published: December 15, 2013

The best argument for putting inequality on the back burner is the depressed state of the economy. Isn’t it more important to restore economic growth than to worry about how the gains from growth are distributed?

Well, no. First of all, even if you look only at the direct impact of rising inequality on middle-class Americans, it is indeed a very big deal. Beyond that, inequality probably played an important role in creating our economic mess, and has played a crucial role in our failure to clean it up.

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It’s now widely accepted that rising household debt helped set the stage for our economic crisis; this debt surge coincided with rising inequality, and the two are probably related (although the case isn’t ironclad). After the crisis struck, the continuing shift of income away from the middle class toward a small elite was a drag on consumer demand, so that inequality is linked to both the economic crisis and the weakness of the recovery that followed.

In my view, however, the really crucial role of inequality in economic calamity has been political.

In the years before the crisis, there was a remarkable bipartisan consensus in Washington in favor of financial deregulation – a consensus justified by neither theory nor history. When crisis struck, there was a rush to rescue the banks. But as soon as that was done, a new consensus emerged, one that involved turning away from job creation and focusing on the alleged threat from budget deficits.

What do the pre- and postcrisis consensuses have in common? Both were economically destructive: Deregulation helped make the crisis possible, and the premature turn to fiscal austerity has done more than anything else to hobble recovery. Both consensuses, however, corresponded to the interests and prejudices of an economic elite whose political influence had surged along with its wealth.

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Surveys of the very wealthy have, however, shown that they – unlike the general public – consider budget deficits a crucial issue and favor big cuts in safety-net programs. And sure enough, those elite priorities took over our policy discourse.

Which brings me to my final point. Underlying some of the backlash against inequality talk, I believe, is the desire of some pundits to depoliticize our economic discourse, to make it technocratic and nonpartisan. But that’s a pipe dream. Even on what may look like purely technocratic issues, class and inequality end up shaping – and distorting – the debate.